An FHA loan is a mortgage insured by the Federal Housing Administration (FHA). The FHA was created in 1934 as a result of the National Housing Act. This division of the government was established to increase home construction, reduce unemployment, and operate various loan insurance programs.
The FHA is not a loan lender, nor does it plan or build houses. Instead, it acts as the insurer on thousands of loans for Americans who might not otherwise be able to afford or qualify for a home loan. Since the FHA is not a mortgage lender, only approved lenders provide these loans.
Like all loans, you will have benefits and drawbacks when you get an FHA loan. Before deciding if you should apply, weigh the pros and cons to see how well you can accept the negative aspects of the loan considering the positive side of having one of these means of borrowing money for your home.
Minimum credit scores for FHA loans depend upon the type of loan the borrower needs. However, in general, to get a mortgage with a down payment of around 3.5 percent, the borrower will likely need a credit score of at least 580 or higher. Borrowers with scores between 500 and 579 are likely to need a down payment of at least 10 percent. Borrowers with credit scores under 500 are usually ineligible for FHA loans, but the FHA will make exceptions for people with “nontraditional credit history” or “insufficient credit.”
Homes that qualify for FHA loans must meet HUD homebuilding guidelines. Additionally, the home value must be above the floor and under the ceiling loan amounts. These amounts change each year as the FHA evaluates changes in home prices across the country